Research on Price Discovery and Volatility Spillovers of China Hu-Shen 300 stock Index Futures

After the introduction of China Hu-Shen 300 stock index futures, the price discovery function and the impact of volatility to spot market of the stock index have been the academic focus. This paper studies the price discovery function and interaction between the futures and spot markets of Hu-Shen 300 stock indexes based on the Johansen co-integration analysis, Vector error correction model and bivariate EGARCH model with an error correction. The evidence suggests that most of the price discovery takes place at the spot markets; China Hu-Shen 300 stock index futures will weaken the conditional fluctuations of the spot market. Visibly, the price discovery function of Hu-Shen 300 stock index futures did not been due to play. However, its function of stock index volatility has been reflected.